Rates Tick Lower as Traders Monitor Progress in the Middle East

Flash Update: US RATE MARKETS – TUESDAY AUGUST 4, 2026

• UST yields and SOFR swap rates are a touch lower this morning as traders cautiously monitor developments in the Middle East

• According to news reports, the US and Iran have resumed peace negotiations, centered on reopening the critical Strait of Hormuz

• Crude oil prices dipped on the news – that was the primary catalyst for the decline in rates this morning (and this week)

• Expect rates to continue to track the direction of oil prices until more substantive ‘negotiation developments’ are announced

• Should negotiations stall or collapse and/or should military hostilities resume, rates are likely to move higher

• The US-Iran conflict remains the primary driver for the rate markets

• Equity markets will also remain in focus as pressure on the tech sector continues – Chipmakers and AI names remain most vulnerable

• The next FOMC rate decision is due on Wednesday, September 16th at 2:00 PM

• Fed-funds futures implied odds for a 25 bp rate hike at the September FOMC meeting are currently at ~60.9%

• Next up for key economic data: The August Employment Report is due for release on Friday, 8/6 at 8:30 AM

• There is a full plate of secondary economic data due this week including JOLTS (today at 10:00 AM), ADP Employment Change (8/5) & ISM Services (8/5)

• Short-term SOFR swap rates are trading down ~3-4 bps this morning, depending on tenor

• Medium-term SOFR swap rates are down ~3-4 bps currently, depending on tenor

• Long-end SOFR swap rates are trading down ~2-3 bps this morning, depending on tenor

Good morning – US Treasury yields and SOFR swap rates lower this morning, as oil prices dip on easing Middle East tensions. The news out of the region continues to be mostly positive. News reports suggest negotiations to get more ships moving through the Strait of Hormuz are making progress. President Trump also said a deal to open the Strait of Hormuz “may be close”. For the week, short-end SOFR swap rates are down ~10 bps – that has led to slightly lower 1Y, 2Y and 3Y cap premiums this week.

Traders remain cautiously optimistic on the outcome of the conflict this morning – yes, there are few hard details available, but news reports this morning imply progress is being made toward reopening the Strait of Hormuz and permanently ceasing military hostilities. This is a developing story that market participants will be tracking closely. Traders have been duped before by the rhetoric and sudden “about faces” we have seen during the war. A fatigued market is hopeful that this round of negotiations between the US and Iran will result in actual results. The situation in the Middle East will continue to captivate market sentiment this week. Overall, SOFR swap rates remain range bound as the market seeks clarity and direction.

Middle East “developments”, AI and tech-sector equity valuations and inflation fears will continue to impact market sentiment. Traders are also looking ahead to the key US July jobs report due Friday at 8:30 AM. That report may provide further clues into the Federal Reserve’s policy path. NOTE: I would also point out that given the lack of Fed forward guidance, I suspect that economic data will be even more critical for bond and rate traders going forward.

Check our website for a calendar of upcoming economic data - astdefeasance.com.

Market uncertainty regarding the path forward for interest rates remains at elevated levels – I expect that “uncertainty” to remain elevated for the foreseeable future.

Oil Prices Dip on Middle East “Progress”

Source: Bloomberg, LLP | BRENT CRUDE OIL PRICES – PRIOR 6-MONTHS

“Key News” the market is tracking includes:

• Geopolitical developments continue to weigh on markets.Developments in the US/Iran “war” will continue to dominate market sentiment.

• Market participants continue to track developments in the US equities markets. There is still a sharp focus on the performance of the growing AI sector. Overall market sentiment, and perhaps even economic performance, could be impacted by “tech” earnings for the foreseeable future.

• Tariffs are once again in focus, as President Trump implements a new round of tariffs and threatens more are coming. This is the last thing global markets need right now – they are already grappling with massive inflation uncertainty due to the conflict in the Gulf. This is a developing story, so the market impact is undetermined currently.

• The possibility exists we may be facing another government shutdown soon. Lawmakers have reached a temporary compromise to avert a shutdown for now, but the threat of another government shutdown looms.

SOFR Swap Rate Summary:

The 1Y SOFR swap rate is trading down ~3-4 bps this morning. 2Y and 3Y SOFR swap rates are currently trading down ~3-4 bps. 5Y and 10Y SOFR swap rates are trading down ~3-4 bps this morning. The very back-end of the swap curve (20Y and 30Y) is currently down ~2-3 bps from yesterday’s closing levels.  

Please note: Market levels can change rapidly – rate cap premiums are subject to a dynamic market that can change frequently.

CHART 1:US RATES SNAPSHOT: 9:30 AM Eastern

Chart 1 Key:

• Far Left Columns:US Treasury Yields & Change on Day (bps)

• Center Columns:SOFR OIS Swap Spreads (bps) & Change on Day (bps)

• Far Right Columns:SOFR OIS Swap Rates & Change on Day (bps)

UST YIELDS | SWAP SPREADS | SOFR SWAP RATES

Source: Bloomberg, LLP | 9:30 AM NY Rates Snapshot

CHART 2, 2A & 2B: SOFR SWAP RATES MOVE LOWER; EASING MIDDLE EAST TENSIONS SOOTHE RATE MARKETS

SOFR swap rates are down this morning, but not significantly, as cautiously optimistic traders anxiously monitor developments in the Middle East. Traders and investors are proceeding cautiously, given the numerous head fakes and about-faces we have seen throughout the duration of the conflict. That said, optimism that a solution can be reached is building, which should help to gradually push rates lower. However, make no mistake – should talks collapse or hostilities resume, market sentiment will shift quickly, and we are likely to see higher rates.

Oil prices edged lower this morning to ~$82 a barrel, as the two sides have resumed negotiations to reopen the Strait of Hormuz and move towards a peaceful resolution to the conflict. Focus is likely to remain on the US-Iran war this week. Markets are growing fatigued by the conflict and sudden shifts in rhetoric – a quick, decisive resolution to the conflict in the near term would be a healing balm for a weary market.

The employment data on 8/6 will grab the market’s attention later in the week. The July Employment Report is due Friday, 8/6 at 8:30 AM. There is also a host of secondary economic data set for release this week. Next up, we will see the JOLTS jobs report this morning at 10:00 AM.

Market participants will continue to anxiously monitor the myriad market forces at work. Cautious uncertainty surrounding the conflict in the Middle East, the sustainability and veracity of tech sector equity valuations, the growing US deficit, and the path forward for the FOMC are making it extremely challenging to chart the path forward for swap rates currently.

US-IRAN WAR IMPACT: Key SOFR Swap Rate Movements Since The US-Iran War Began

• The 2-year SOFR swap rate closed at 3.21% on Friday 2/27 – it is currently trading at ~4.058%(+84.8 bps)

• The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~4.069%(+84.9 bps)

• The 10-year SOFR swap rate closed at 3.52% on Friday 2/27 – it is currently trading at ~4.239%(+71.9 bps)

CHART 2:Short-End SOFR Swap Rates – Year-To-Date 2026

Source: Bloomberg, LLP | 1Y (white), 2Y (blue) & 3Y (orange) SOFR SWAP RATES; YTD 2026

CHART 2A:Long-End SOFR Swap Rates – Year-To-Date 2026

Source: Bloomberg, LLP | 5Y (green), 7Y (purple) & 10Y (light blue) SOFR SWAP RATES; YTD 2026

CHART 2B: US Treasuries: Yield Overview – Year-To-Date 2026

Source: StreetStats | US Treasury Yields; YTD 2026 (30Y UST yield – top line; 10Y UST yield – middle line; 2Y UST yield – bottom line)

RCA Product & Pricing Update:

Product Spotlight: What We Are Seeing In The Rates & Derivatives Markets

The market is once again facing tremendous uncertainty surrounding the path forward for interest rates. Borrowers should be as nimble as possible in this market environment. Cap purchasers should onboard as quickly as possible – there is no cost to onboard. It is important to be in a position to take advantage of market opportunities quickly and efficiently.

Given the high-level of uncertainty surrounding forward rates, many clients are grappling with when or if to extend. This is a difficult question – our advice has been to monitor the market closely and be on-boarded and ready to trade, should the market move in your favor. We also advise borrowers to check the market pricing for extensions, similar to how you purchased the original cap. Market pricing discovery is a key component to any cap transaction – new caps, extensions or terminations.

There is an increasing interest in exploring interest rate swaps as a possible hedge alternative. IR Swaps lock in a synthetic fixed rate and do not require an upfront premium. Unlike an interest rate cap, swaps are secured derivatives, so the counterparty selection process is more challenging with a swap. There are also additional variables that factor into the decision to pursue an interest rate swap, or to unwind an existing swap. We are also seeing a dramatic increase in swap termination advisory requests recently, as clients contemplate refinancings. Lower rates have sparked refinancing activity, which in some cases necessitates unwinding an existing swap. Please let us know if you would like to learn more about interest rate swaps, or swap terminations.

We are still seeing some residual demand for interest rate floor indications – to offset high loan floors or simply to benefit from declining variable rates. Borrowers who have “floors” embedded in their loans have been considering purchasing a separate, stand-alone interest rate floor to offset the loan floor.

Interest Rate Cap Hub: Pricing & Volatility Update for 8/4/2026

• Current 1-Month SOFR = 3.65011%(Prior Day’s Reset: 3.65677%)

• Volatility has ticked higher as swap rate movement becomes more pronounced

• Despite the uptick in volatility, swap rates remain in a relatively narrow range as the market seeks clear direction

• Cap premiums have improved this week due to the decline in SOFR swap rates

Cap Pricing Matrix:1-Month Term SOFR Cap Premiums: Week-On-Week

*Indications as of Market Open. Premium levels provided are indications only and subject to frequent change.

CHART 3:Historical Volatility: MOVE Composite US Treasury Yield Volatility Index & VIX Equity Volatility Index – Year-To-Date 2026

Source: Bloomberg, LLP | HISTORICAL US TREASURY YIELD VOLATILITY, “MOVE” INDEX, HISTORICAL VIX EQUITY PRICE VOLATILITY, “VIX” INDEX – YTD 2026

^NOTE:RATE MARKETS CAN BE VOLATILE - MARKET DYNAMICS AND PRICING CAN CHANGE VERY QUICKLY IN THIS MARKET ENVIRONMENT.

**WE RECOMMEND YOU CALL US FOR ACCURATE, UP-TO-THE-MINUTE CAP INDICATIONS.**

Please contact us if you would like to discuss an upcoming rate cap or rate cap extension, explore ways to reduce or eliminate escrow deposits for replacement caps or learn more about interest rate Caps, Floors, Swaps or Swaptions. RCA can also assist you with the voluntary early termination of your cap or swap.

HedgeWithAnEdge-TheRCAEdge!

Disclaimer: The information provided in this communication is intended for discussion purposes only. Nothing presented in this communication should be taken as a recommendation or forecast. All market data shown is indicative only and subject to change depending on current market conditions. The information in this publication is confidential and is intended for the recipient only.